India - High return FDs may go off the shelf soon

Atmadip Ray

KOLKATA: As interest rates are poised to head south, banks’ special deposit schemes, which offer significantly higher interest rates, have now started going off the shelf. Union Bank of India (UBI), for instance, has just decided to withdraw its 900-day deposit scheme with 10.5% interest rate from next week. And other banks are likely to follow suit.

Uco Bank, which offers 10.5% on exact one-year deposits, said that the scheme would be only for the festive season. UBI, too, discontinued with its one-year deposit from November 1 even as it raised deposit rates.

Such schemes are ‘special’ since they come with interest rates which are higher than the rates attached on regular deposits on either side of the special term.

Indications from all quarters concerned are also quite loud and clear that interest rates on deposits in general would dip from their current high levels. So, if you are sitting with liquid cash and looking for a safe haven for investment, this is probably the best time to park your funds with bank fixed deposits. You may not get interest rates which are as good as 10.5% per annum on your deposits for long.

“We will reduce deposit rates with effect from November 9. We have decided to withdraw the 900-day scheme on which we offer 10.5% rate per annum. There will be no change in deposit rates for other time buckets,” UBI chairman and managing director MV Nair said. According to him, UBI has mobilised Rs 4,000 crore through this single-deposit instrument during the past one month.

For the moment, State Bank of India is yet to take a decision on deposit rates. Other top banks, in principle, have agreed to reduce their rates. They have gone back to their drawing boards to finalise the extent of the reduction and the timings for the same. Interestingly, the likes of Allahabad Bank, Bank of India, UBI, Uco Bank have raised their deposit rates just recently. They, too, have started contemplating realigning their strategies with the market.

Uco Bank CMD SK Goel said: “We will take a decision on rates on November 10. By then, the real impact of Reserve Bank of India’s liquidity infusion doses will be clear.”

UBI executive director TM Bhasin said: “After RBI’s signal to lower interest rates in general, our deposit rates have to be corrected now.” It has reduced its lending rates to all advances linked with prime lending rate. The bank added: “More reductions in lending rates will be considered commensurating with decrease in deposit rate in the next week.”